All Forum Posts by: Matt Nico

Been looking for properties in Texas with my business partner, another BP member, and we are struggling with our cashflow due to the high interest rates.

Would love some insight and guidance!

Situation and our plan:

- am Canadian so been very difficult to get funding as a Canadian, so properties will be funded under my partner's personal name and then transfer to our LLC

- we will be BRRRR SFH and most properties do not cashflow well at 5.25-5.50% investor rate

Would love to know what your investor rates are and if we could do better, and how to do better with our rates.

Really want to get into the market soon.

Thanks everyone in advance.

Sincerely,

Alice in Montréal

@Alice Huang

From my understanding and me talking to lending institutions on the phone the last week or so, 5.25%-6% is pretty standard for a rental property. As a reference, my credit score is about 720. Thats what I am getting quoted on for rental property I am planning on refinancing, as well as buying. I only have 4 properties right now, so I am planning on using a Fannie/Freddie loan as well, which I have been hearing are in the low 4%'s currently, but you can only get 10 of those in your name just for reference.

In terms of your investment strategy, I think you need to look in another area other than where your looking. It sounds like everything you are analyzing is not a "Deal". As a reference, the houses I buy are around $250,000-$275,000 and I'm getting cash flow of $800-$1000. Sometimes more. I'm not BRRRR'ing these though. I am putting a down payment. My area has houses in the $90k-$150k range to BRRR, but I like the higher cash flow personally.

Feel free to shoot me a PM if you have any specific Questions.

Happy Housing,

Matt

0 Votes

Originally posted by @Eric Imhof:

Ok y’all, I’m new-ish to the game and looking for some help on what to do with my first rental. I’m going to put in a ton of numbers, and I’m looking to answer the sell or hold question. Thanks for your help!!

Property Info:

3 BR / 1.5 Bath / 1200sq ft

Bought in 2017 for $163500

Down payment of 5% + $3k in closing costs

30 yr FHA loan @ 4.375%

Remaining Principle Balance: $145k

Monthly rent: $1500

Vacancy: it’s never even had to go to market to fill, but I’ll say 1%/mo just to be safe

Cap Ex: I bought it freshly renovated, but I’ll use 5%/ mo to be safe

Repairs: 5%/mo to be safe, but in 3 years of owning it I’ve probably spent $100 total on repairs.

Yearly Figures:

Gross rent: 18,000

Operating Cost: 3,794 (21% of gross)

NOI: 14,026

Cap Rate: 8.6%

CoC return: 31.3%

Cash Flow: 4,099 (342/ mo)

Okay that's a lot of numbers. This house doesn't pass the 2% test, but if I charged that much in Roanoke VA I'd never have tenants. Also at this very moment, my realtor is telling me that pretty much any SFH in my area listed for less than $250k has a good chance of going for asking price. The kicker being that there aren't really any deals on the market right now.

I’m torn between some options:

- Hold and HELOC

- I'm considering holding to keep the cash flow, but getting the house reappraised and taking out a HELOC to use when the right deal comes along. If I tried to cash out and refi, I'd lose my FHA interest rate.

- Sell & 1031:

- I think I could sell right away for at least $225k for an $80k profit (not including closing or realtor fees). We're in a peak surge of home sales right now because so little is on the market. The caveat is the house is on an FHA loan and I didn't live in it for 2 years. So I'd have to do the 1031 exchange, and I'm deeply concerned I won't find any identifiable deals within 45 days.

Maybe this is a black and white situation, but I keep going in circles on it. What do you think?

@Eric Imhof

Question: Do you live in this property as well or is this a pure rental? If you live in it, I would refinance IMMEDIATELY. 4.4% interest is crazy for an owner occupied home. I just refinance my home, and I paid 3.5% interest now. I am doing a house hack on it, and I increased the cash flow by $250 just by refinancing it.

It sounds like getting a HELOC is the right way to go if your property is performing so well and you know there wont be any cap X issues for a while. Additionally, if its appreciating that much, why would you dump it off ad lose out on future appreciation?

I'd hold the property, get the HELOC, and try to make a great deal somewhere with the money. With this whole Covid thing happening, there should be some good deals coming down the pike in the future.

Happy Housing,

Matt

0 Votes

Originally posted by @Rachel Wood:

My husband and I want to get started in real-estate. We would like to eventually own rental properties, flip houses, and maybe do some wholesaling. Here is our dilemma: We only have a VERY basic knowledge of fixing up houses (painting, some drywall...etc), we have zero ability at the moment to get a home loan (because my husband recently started a commission-paying job), we don't know of any investors...and even if we did, we don't know if they'd be willing to invest with us because we don't know what we're doing.

So, how do we get started? Do we need to take some time to learn all the ins and outs, or do we jump in feet first and learn as we go? We are 36, have 6 kids, have not been very smart with money until recently, and want to become financially independent asap! We live in Central Missouri, if that makes any difference.

@Rachel Wood

Rachel, I would focus your efforts on learning real estate in the immediate future. If you have the time to do the construction, I say go for it.

Do you currently have any assets? Do you have a house with some equity in it possibly? That could be a good place to find some hidden money to be able to invest.

If you own a house right now, I would see if fixing it up at all would increase its value in your area. That would be a great place to start learning rehabs. I learned from trial and error for some things, and then a lot of youtube videos. If you want, I could recommend you to a Youtube channel that is great for a lot of first time projects. The guys teaches painting, drywall, laying tile, bathrooms, everything.

It might be very difficult for you to find a partner as you cant really bring any value to the table currently. I'd say to find another source of income to save up for a house, and buy a property that has an in-law suite, or a place where you could build one. So you could get practice with the construction in your own home, and when your done, you can rent it out and get exposure that way.

Happy Housing,

Matt

0 Votes

Originally posted by @Account Closed:

Hi everyone,

First time poster here! Im a 26 year old Navy veteran looking into real estate investing. I just finished the BP book on Rental Property Investing and am definitely interested in pursuing this type of investment strategy. I would like to either start my first purchase with a multi family house hack or use a section of a home for such things as constant AirBNB. My question to you all is I am looking in the Windermere area of Disneyworld or close around that area and am wondering if this area is a viable area for such investments? I should also mention that I am planning to use my VA home loan for the purchase and it will be my primary residence. Thank you in advance for all your help and guidance!

@Clayton Singer - Hey Clayton, good post. I actually deploy the exact strategy you are wanting to do. I have 4 rentals right now, all house hacks....and 3 more on the way as pure rentals. I would say about 90% of my tenants are Disney cast members.

If I were you, I would stay away from Windermere or Celebration areas if you want to buy a pure investment property. There are multiple reasons why, but long story short they wont cash flow as well as if you bought something in a slightly different area. With a VA loan, you could probably make a house-hack work in Windermere, but just know that if you are looking to establish cash flow every month, Windermere crushes you with its high HOA fees, high taxes, and just overall higher home prices in general. If I took a $250,000 home and moved it to Windermere, it would be $500,000 there.

The other problem with your strategy is that there are not many multi-family places down here. I would say good luck to you if you are trying to find a 4-plex. They dont exist for a price that will work for you. In Windermere specifically, I know there are a lot of houses in the area that have in-law suites. They are becoming more common down here, and I'm actually building one into one of my properties right now. If you were willing to live in a small space and rent the main house out, your strategy could potentially work.

If you want to shoot me a PM with any specific question you might have and I'll do my best to answer it.

Happy Housing,

Matt

0 Votes

Originally posted by @Omua Ahonkhai:

I am closing soon on a triplex in the city. This will be my first MFH and I am considering a home warranty. What are your thoughts on using them? Are they useful? Or are they a waste of money?

Thanks!

@Omua Ahonkhai - Hi There!!! I have 4 rental properties and for the first 3 I got a home warranty for them. The rentals were all single family homes with pools and older AC units, which I didn't know how to run or fix yet. For the first 2 deals, I negotiated it into the price for the seller to purchase me one. They are usually like $600-$800 for a good one for a year's coverage. When you are negotiating, once you think you have gotten the seller to go as low as he can go, say "Okay, I'll accept that price if you throw in a home warranty". Or wait for the inspection to come back, and use that as leverage to get the price down and get a warranty. And while I had the HW's, I did use them probably 2 times each per year.

These days I do not get a home warranty because the homes I buy are so beat up I am planning on ripping them apart anyway. And I know how to fix almost anything at this point (that's what 4 years of self managing does).

Final thoughts: If you are handy and you think you can fix a lot of small problems a warranty covers, then I'd say dont bother. If you are just starting out or are not that familiar with repairs and maintenance, definitely get one.

Happy Housing,

Matt

2 Votes

Philadelphia, Pennsylvania

Originally posted by @Daniel Sabato:

@Matt Nico Perfect example, thank you Matt. Not that different than refinancing for a better rate. How do you decide that the property is now worth X amount of dollars? Do you get an independent appraiser to look at the property for you?

@Daniel Sabato - No, a HELOC is very different than a refi for a better rate. A "Cash out refinance" is where you cash out your money 1 time and your loan period restarts.

Lets say I did the cash out refi on my last example:

$200,000 mortgage. I refinance it to a mortgage of $260,000, where the bank gives me the $60,000 (minus closing costs), and I have a new 30-yr fixed mortgage at 260k, but with $60k in my pocket. My monthly payment goes up. My interest rate will change.

Now lets say I use a HELOC:

$200,000 mortgage. The bank lets me borrow up to $260,000. So they give me a line of credit on my house for $60,000, with the original $200,000 mortgage staying the same. It works like a credit card....when I want it, I use it. When I dont want it, I dont use is, but its still available. Usually HELOC's have a 10-year draw period. Interest only payments. Think of it as a credit card using your house.

1 Vote

Originally posted by @Daniel Sabato:

@Matt Nico Matt can you explain the home equity line of credit a bit more? I just bought my first rental property & so far it s gone very well, I should have a 2nd very soon but naturally I’m wondering if there’s anything I’m missing or could be leveraging to be smarter about this & continue building.

@Daniel Sabato sure I'll explain it using one of my own properties. Here you go:

A few years ago, I bought a house for $225,000. I put a bit of money into it to fix it up a good amount (granite countertops for example of one thing I did), and then I rented it out. Over the past 3 years, my tenants have paid my mortgage down to $200,000. So I bought it for $225,000, but the mortgage is down to $200,000. With all of the upgrades that I have made to the house, as well as the houses in my neighborhood going up in value, in 3 years the house has gone up in value to being worth $325,000.

So I owe $200,000 on a house worth $325,000. This means I have a lot of equity in it. So now enter in the Home Equity Line of Credit (HELOC). I call a bank up, and I tell them "Hi, I have a house worth $325,000 that I want to pull money out of to use for something else. I have a mortgage for $200,000." The bank says "Okay, we can get that done for you. We will allow you to pull 80% of the total equity of your house out for you to use."

80% of $325,000 is $260,000. So they will let me borrow up to $260,000. My house has a mortgage of $200,000 on it.

So $260,000 - $200,000 = $60,000.

So the bank will let me borrow $60,000 using my house as the collateral. And I can deploy that $60,000 to do with what I want.

Hope this helps,

Matt

1 Vote

Originally posted by @Daniel Sabato:

@John Warren Thank you that makes a lot of sense. Are you essentially playing a waiting game for the property value to appreciate or do you actively make updates and such to bring the value of the property up?

@Daniel Sabato - Properties naturally appreciate in value over time. I bought a property for $225,000 3 years ago, and it is worth about $325,000 now. Once you get a rental property and get a mortgage on it, remember that while the property appreciates, your tenants are paying down the mortgage, giving you more equity in the property.

Even if your house didn't appreciate at all, you would still be able to do a cash out refinance eventually, but remember that when you do a refinance, your 30 year (or however long your mortgage is) financed period resets. That hurts you because you pay more interest in the long run. Its best to cash out money using something called a "Home Equity Line Of Credit" and keep the mortgage on your property paying down as usual, unless the interest rate is high. Then refinance it.

0 Votes

Originally posted by @Kyle Leygraaf:

Hello - I purchased a duplex late last summer and have invested significant equity in the project. I refinanced my initial mortgage in April (no cash out) due to the lower rates, and my new appraisal came in significantly higher than my purchase price (16%, or $66k). I am trying to get a HELOC to unlock some of that equity for more repairs. I heard from one lender than their HELOC would be capped at 85% LTV based on purchase price for the first 12 months after closing. In other words, they would not honor the "value" of a new appraisal until a year after closing.

Does anyone know of any banks, credit unions, etc. that will perform a reappraisal after less than a year for a HELOC? I heard a BP podcast from a few years ago where someone found a bank willing to do this. In a worst case scenario I could wait until a year passes, but it would be nice to continue to get some renovations done before then.

@Kyle Leygraaf - If you purchased it last summer and you have increased its value, just go after the HELOC now. I have never heard of any bank requiring you to wait a year for getting a HELOC. The only thing banks asked me is if my DTI is low enough and if the equity in my house is high enough that I can borrow money in the first place.

Banks are tricky sometimes, I would do what the guy above mentioned and make a lot of calls. Get a list of a dozen banks in your area and call them all until 1 can help you.

0 Votes

Hello BP,

This is my 2nd post of a property I picked up with seller financing in the whole COVID Market. Long story short, the banks wouldn't lend to me, so I had to find a different kind of deal. And I found a seller who doesnt mind carrying the financing. To see how I structured the deal, see the first post I made. Just to clarify, I buy, rehab, and manage all of my own property.

Anyway, I'm trying to make this a weekly thing, where I will take everyone who wants to follow on a journey into the trenches of a real estate rehab. The main objective early in the week was to get supplies and load them into the house. Wood framing, all of my tools, and tile for bathrooms. Then it was demo time.

I decided to do the most difficult task first, which was to rip out a kitty-litter filled bathtub. The goal was to remove the tub, and demo the old white subway tiles. I exposed all of the walls for the shower. Then the hardest part came; I had to cut a hole though the 4" Concrete foundation slab to access the plumbing underneath. After a few hours of banging and cutting, I broke through.

You can see in one of the pictures I have a hole in the floor, and in the next one its patched. That was after I put the new plumbing P-trap and riser in. After that, you can see from one picture to the next the plumbing on the right side, and far wall change. I ripped out the old plumbing, and I rebuilt it with my new shower assembly. The diverter valve is in, with the 2 out-going attachments being for a hand-held shower wand, and then above will be a rain shower (I cannot wait).

Well, I think that's all for the progress for this past week. This coming week we will finish up the bathroom, and I have some people coming to paint some of the bedrooms and then possibly the kitchen or the next bathroom will get started later on in the week.

I hope everyone enjoyed the post. Feel free to follow along with the pictures below, and if you have any questions, please ask. I'll be happy to answer anything.